Why Today’s Generation May Only Retire At A Later Age

Retirement, also coined in Singapore as the re-employment age, has been changed to 67 years old in 2017. What this means is that employers cannot ask us to leave our jobs before the age of 67 as long as we meet some criteria.

Before we proceed on to discussing when we can retire, we would like to debunk an age-old myth that increasing the re-employment age DOES NOT mean that the government is forcing us to work longer.

Basically, we can still choose to retire at any age, but what determines our personal retirement age is how much moolah we have in our bank account and investments. The Retirement and Re-employment Act protect us from being dismissed at an earlier age.

How Much Does The Average Household Spend In A Month On Essential Items?

To understand how much we need to retire, we first need to know how much we are likely to spend during retirement.

Let us break it up to three categories with regards to household income levels: (1) the bottom 20%, (2) middle 60% and the (3) top 20%. Per the household expenditure survey conducted by Singapore Department of Statistics, in 2012/2013, the bottom 20% spends an average of $1,669/month, the middle 60% averages $3,012 and the top 20% spends $4,113/month on essential items.

Will We Have Enough Assuming We Retire At 55 Years Old?

Core inflation (excluding rentals, housing and private transport) for the bottom 20% is 1.3% while the middle 60% and top 20% is at 1.4% on average for the last 5 years. By extrapolating this core inflation amount, we will find that those belonging to the bottom 20% will require about $2,432 per month if the household income contributors intend to retire in 30 years (refer to the table below) with the same standard of living. The later we retire, the more we are required to spend on average. That’s because of inflation.

Do note that the average expenditure is the average of 12 months, meaning that huge ticket items like hospitalisation and travelling are divided equally into 12 months, therefore we see today’s average expenditure of $3,012/month which seems hefty for the middle 60%.

Exhibit 1: Expected expenditure in the future based on average household expenditure

Source: Singapore Department of Statistics, DollarsAndSense estimates

For example, a couple who falls within the middle 60% who intends to retire in 30-year would require about $4,636 per month. This sums up to $55,629 per year.

To sum this up, what it means is that retirement in the future is going to be more expensive than retirement today.

Is Retiring Later Really A Bad Thing?

As of 2015, the average Singapore resident (citizen and permanent resident) life expectancy is at 82.7 years old. This number has been increasing as Singapore transits from an underdeveloped county to a high-tech medical paradise where our life expectancy is one of the highest in the world.

On average, for every 10 years, the average life expectancy will increase about 2.5 – 3.5 years in a declining state. Therefore, if we extrapolate in 30 years’ time, it is possible that the average life expectancy of Singaporean residents could be close to 90 years old.

If you think about it, if we were to retire at age 55, we may have on average about 35 years for retirement. This would be similar to a Singaporean in 1989 retiring at age 40 where the life expectancy back then was 75. To sustain our retirement, we need to think about whether we have sufficient resources (money) to be able to retire that early.

The simple logic here is that as our life expectancy in Singapore continues increasing (it has increased from 74 in 1985 to about 83 in 2015 in 30 years), we must balance between having more years for retirement and working longer.

If we were to simply spend all our additional years during retirement, then we would need to save and invest a lot harder during our career so that we can still retire at the same age as what our parents are retiring at today. Alternatively, working till our late 60s could be a very viable option (health willing) that young Singaporeans today should be prepared for.

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